Asian Stocks Extend Global Rout on Lehman, AIG, Oil Decline

By Chua Kong Ho and Shani Raja
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Sept. 16 (Bloomberg) -- Asian stocks plunged the most in six months, extending a global rout, led by creditors of Lehman Brothers Holdings Inc. and commodity producers after raw- material prices slumped.

Mitsubishi UFJ Financial Group Inc., the largest Japanese bank, dropped 9.8 percent in Tokyo. Babcock & Brown Ltd., among Australia's biggest losers from the global credit crisis, sank 32 percent. American International Group Inc., seeking funds to avoid failure, plunged 61 percent yesterday in New York, part of the biggest tumble in U.S. stocks since the September 2001 terrorist attacks. Nippon Mining Holdings Inc. lost 5.5 percent, leading mining companies lower, as oil and copper dropped.

``You're going to get a massive flight to safety,'' said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $108 billion. ``Banking stocks are guilty by association. There's no place to hide because commodities were down quite sharply last night too.''

The MSCI Asia Pacific Index declined 3.5, or 3 percent, to 112.11 at 10 a.m. in Tokyo, set to close at its lowest since Nov. 16, 2005. Japan's Nikkei 225 Stock Average dropped 4.7 percent to 11,641.87. All Asian markets open for trading fell.

South Korea's Kospi Index tumbled 5.3 percent and index futures plunged, prompting a five-minute halt in program trading of shares on the measure. South Korea may provide more funds to help stabilize financial markets following Lehman's bankruptcy filing, the country's vice finance minister said.

Global Rout

The Bank of Japan added 1.5 trillion yen ($14.4 billion) into the financial system, while China cut interest rates for the first time in six years as weakening exports dimmed the outlook for growth. Markets in Japan, China, Hong Kong and South Korea were shut for public holidays yesterday, when the MSCI Asia Pacific excluding Japan Index retreated 1.9 percent.

U.S. stocks tumbled, pushing the Standard & Poor's 500 Index down 4.7 percent. S&P 500 futures lost 0.5 percent today. The cost to protect Japanese and Australian company debt from default rose to the highest in more than five months, credit default swaps show.

Lehman, the fourth-largest U.S. investment bank, was forced into the biggest bankruptcy filing in history, becoming the latest victim of the subprime mortgage crisis. At least seven Japanese banks lent a total of $1.62 billion, according to the Chapter 11 filing by Lehman.

Mitsubishi UFJ fell 9.8 percent to 774 yen, while Sumitomo Mitsui Financial Group Inc. declined 12 percent to 603,000 yen. Babcock & Brown, an infrastructure manager, tumbled 32 percent to A$1.07.

`Systemic Risk'

Kookmin Bank dropped 7.7 percent to 55,500 won. Woori Finance Holdings Co., which controls South Korea's second- biggest bank, fell by a record, plunging 14 percent to 13,050 won. South Korea's Financial Services Commission said yesterday the country's firms have invested about $720 million in loans and securities linked to Lehman.

AIG, the biggest U.S. insurer by assets, may be propped up by $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co., according to people familiar with the situation. S&P cut the insurer's long-term counterparty rating to A- from AA- and also lowered the short- term counterparty credit rating, and said they remain on watch for a possible further downgrade.

``AIG poses a systemic risk because it's a large counterparty in the financial system,'' said Prasad Patkar, who helps manage the equivalent of $1.8 billion at Platypus Asset Management in Sydney. ``It's too big to be allowed to fail.''

Oil, Copper

Nippon Mining, Japan's biggest copper producer, dropped 5.5 percent to 467 yen. Rio Tinto Group, the world's No. 3 mining company, slid 1.1 percent to A$105.24 in Sydney. Woodside Petroleum Ltd., Australia's No. 2 oil and gas producer, fell 2.9 percent to A$50.52.

Crude oil tumbled as much as $2 a barrel to a seven-month low of $93.71 a barrel after refineries along the Gulf of Mexico escaped major damage from Hurricane Ike. Copper fell 1.8 percent, the most since Sept. 5.

The Reuters/Jefferies CRB Index of 19 raw materials declined as much as 2.5 percent, erasing this year's gain. Copper has dropped 26 percent from a record in May.

To contact the reporter for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.